DBRS Confirms Ratings of JPMBB Commercial Mortgage Securities Trust 2014-C22

DBRS Limited (DBRS) has today confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2014-C22 (the Certificates) issued by JPMBB Commercial Mortgage Securities Trust 2014-C22 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3A1 at AAA (sf)
-- Class A-3A2 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-C at AAA (sf)
-- Class X-D at AAA (sf)
-- Class X-E at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class EC at A (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (high) (sf)
-- Class G at B (low) (sf)

All trends are Stable. The Class EC certificates are exchangeable with the Class A-S, Class B and Class C certificates (and vice versa).

The rating confirmations reflect the overall stable performance of the transaction, which has experienced a collateral reduction of 1.1% as a result of scheduled loan amortization since closing. At issuance, the pool consisted of 76 fixed-rate loans secured by 120 commercial and multifamily properties. As of the May 2016 remittance, all 76 loans remain in the pool with an aggregate outstanding principal balance of $1,107.5 million. The top 15 loans continue to exhibit stable performance with a weighted-average (WA) debt service coverage ratio (DSCR) of 1.66 times (x) and a WA net cash flow growth over the respective DBRS underwritten figures of 21.4%, based on the most recent year-end reporting available for the individual loans. Overall, 98.7% of the pool is reporting Q3 2015 or year-end 2015 financials. At issuance, the pool reported a WA DSCR and debt yield of 1.40x and 8.5%, respectively. There are no loans in special servicing and nine loans on the servicer’s watchlist, representing 9.4% of the current pool balance. Five of the loans on the watchlist have been flagged for non-performance-related reasons pertaining to deferred maintenance, while another loan was flagged for not reporting financials. One of the loans in the top 15 and two loans on the servicer’s watchlist are discussed in detail below.

The 10333 Richmond loan (Prospectus ID#7, 3.1% of the pool balance) is secured by an office building in the Westchase submarket of Houston, Texas. According to the March 2016 rent roll, occupancy has declined to 83.5% from 91.9% at issuance, as a result of the departure of the largest tenant, Williams Morgan P.C., which occupied 9.2% of the net rentable area (NRA) (11.0% of base rent), upon lease expiration in October 2015. According to the servicer, the third- and fourth-largest tenants, collectively representing 8.4% of the NRA, were also confirmed to vacate upon lease expirations in May 2016 and July 2016, which would drive the occupancy rate down to approximately 75.0%. Although CoStar shows the Westchase submarket is reporting an increase in the vacancy rates to 14.2% at June 2016, compared with 10.9% at issuance, the submarket continues to be one of the stronger submarkets within the greater Houston metro area. The subject was noted to be in average condition as of the July 2015 inspection, with no deferred maintenance noted. The YE2015 DSCR was reported at 1.10x, representing a slight improvement over the DBRS underwritten (UW) DSCR of 1.01x. At issuance, DBRS underwrote a higher vacancy rate and higher below-the-line expenses than the Issuer’s respective figures, resulting in a variance of -19.1% to the Issuer’s NCF. The increase in cash flow coverage since issuance is mainly attributed to a 43.0% decline in tenant improvements/leasing commissions (TI/LC) when compared to the DBRS underwritten figures.

The Crawford Place/Second Needham/Newton Corporate Center loan (Prospectus ID#14, 1.8% of the pool balance) is secured by three Class B office buildings totalling 110,104 square feet (sf) in Needham, Massachusetts, and Newton, Massachusetts. The loan was added to the servicer’s watchlist due to upcoming tenant rollover as the largest tenant, Dialogic Corporation (Dialogic), with 25.0% of the NRA, has a lease scheduled to expire in October 2016. The servicer has confirmed that the tenant will be vacating the subject upon lease expiration. As of April 2016, the combined occupancy rate for the properties was stable from issuance at 98.5%, with an average in-place rental rate of $25.20 per sf. In addition to the upcoming departure of the largest tenant, Affiliated Physicians Group, representing 7.0% of the NRA, vacated at lease expiration in May 2016. Unless these spaces are backfilled, occupancy could fall to 66.5% in October 2016 when Dialogic vacates. According to the servicer, the borrower is actively marketing the vacant units and has garnered interest form prospective tenants, with multiple lease proposals outstanding. The September 2015 inspection noted the property to be in average condition, with no major deferred maintenance observed. The YE2015 DSCR was reported at 1.34x, an increase over the DBRS UW DSCR of 0.95x, driven by a 16.8% increase in effective gross income (EGI). The DBRS UW NCF figure represented a variance of -27.3% from the Issuer’s UW NCF figure, driven by a higher vacancy figure and higher TI/LC expenses underwritten by DBRS. The loan benefits from a total current outstanding reserve balance totalling $183,028, of which $80,210 is allocated for replacement reserves, as of May 2016.

The 244 Jackson Street loan (Prospectus ID#22, 1.2% of the pool balance) is secured by a 29,715 sf mixed-use (office and retail) property in the financial district of San Francisco, California. The loan was added to the servicer’s watchlist as a result of two tenants’ leases, representing 42.0% of the NRA, which have expired and they vacated as of March 2016. At issuance, the subject was 100% occupied by a ground-level restaurant tenant and three above-ground office tenants. With the loss of the two tenants in Q1 2016, the occupancy rate declined to 57.0%. According to the servicer, the borrower has signed a lease with a replacement tenant for one of the spaces, and reports interest has been shown in the other space, with nothing signed to date. According to CoStar, the Jackson Square submarket in San Francisco is reporting favourable market metrics with low vacancy rates of 4.4% for comparable office properties as of June 2016, a decrease compared to the submarket vacancy rate of 5.1% at issuance. The July 2015 inspection noted the property to be in average condition, with no deferred maintenance observed. The Q3 2015 annualized DSCR was reported at 1.61x, a decrease from the DBRS UW DSCR of 1.86x, driven by a -7.8% decrease in EGI and an increase in repairs and maintenance expense. Given the healthy market metrics, DBRS expects the empty space at the property will be backfilled in the near term, but will continue to monitor for developments.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are North American CMBS Rating Methodology (March 2016) and CMBS North American Surveillance (December 2015), which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.